Calls for ASIC ratings intervention

Following its announcement that it will seek to lobby government on the issue of product rating conflicts post-election, the Association of Independently Owned Financial Planners (AIOFP) told ifa a new status quo is required.

“Reliable professionally funded research must be the most important aspect to a practice, if you get the product/strategy wrong you will not be in business very long,” said AIOFP executive director Peter Johnston.

“Best practice is only the advisers funding research; as recent history has shown, when you get product manufacturers shopping around for ratings corruption and manipulation compromises the process.

“We believe ASIC should levy every adviser a fee that funds a panel of research houses to assess products and strategy.”

Asked whether he would support an ASIC-administered levy, Dale Gillham of Wealth Within responded: “Absolutely, 100 per cent”.

“I am a product provider myself and we have an individual managed account which we get rated on – and I always thought it was silly that we are paying a ratings agency to rate our product so that advisers can advise on it,” Mr Gillham told ifa. “There’s definitely a conflict of interest.

“ASIC should be watching this issue so much more closely – it’s so counter to everything [ASIC] stands for on transparency and ‘arm’s length’ – how can it be ‘arm’s length’ if you are paying them for a rating?”

While conceding the research houses that offer product ratings services are “generally good operators and you can’t push them around”, Mr Gillham said he believes some larger fund managers may be seeking to influence ratings through additional payments to ratings agencies.

However, Instreet Investment managing director George Lucas said the intervention of the corporate regulator is unnecessary.

“I don’t think the ratings issue is a huge problem, the ratings agencies have to get paid somehow – they should have to disclose those conflicts, but like anyone in the financial services industry they have ethical and legislative obligations and they should have to comply with that,” Mr Lucas said.

“I’ve always found the ratings process to be objective.”